Gold: The Only Sector with Improving Fundamentals

The stock market is facing some strong headwinds over the short term and all the wrangling is a real shame considering that we’re still getting great earnings results from large-caps. It’s no wonder the spot price of gold keeps ticking higher; there’s nothing else for investors to rally around.

I still view the current environment positively, but financial markets do not like uncertainty and all these issues regarding debt ceilings and sovereign debt in Europe are wreaking havoc on confidence. In my view, corporate earnings are strong enough to support an S&P 500 Index of 1,500 by the end of the year. A number of analysts and institutional investors feel similarly, but there isn’t much buying of equities because of the uncertainty about sovereign debt.

Investing in gold is becoming a more viable strategy and, for most investors, the sector could represent a larger part of their portfolios. I’m not usually a fan of buying high with the goal of trying to sell higher; but, in this case, with all the global fundamentals we have going on right now, gold investments are the best play.

The gold sector of the stock market is ideal for speculators and, because there’s little growth to be had in the rest of the market, liquidity is great and it’s on the rise. This makes for more trading opportunities and more pronounced moves in share prices when there’s news. For event-driven traders, I would focus a large part of my attention on gold mining shares going forward.

There are a lot of micro-cap stocks in the gold sector, but less mid-cap and even fewer large gold mining companies. Quite simply, a gold exchange-traded fund (ETF) is an easy way to take on a position.

With the spot price of gold at record levels, the gold mining business is a highly profitable business model. There are all kinds of small, junior gold producers that are making money hand over fist with gold over $1,200 an ounce. Most of the established, producing junior miners have tons of cash in the bank, so future exploration and development are virtually assured.

All opportunities in the stock market occur in waves of enthusiasm. Right now, there’s not a lot to be enthusiastic about. But, the one sector that stands out as the most attractive in my view is precious metals; gold, in particular. There just isn’t the growth in the rest of the economy and, frankly, investors aren’t willing to buy it even if they see it.

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